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19 MAY 2020

SALE AND PURCHASE AGREEMENTS

BIF Nyrt. (“Company”) has made several sale and purchase agreements in recent weeks:

On 5 May the Company announced a sale and purchase agreement concluded by and between the Company and Magyar Posta Zrt. concerning the 511/1000 ownership ratio of the real property located at 1101 Budapest, Üllői street 114-116. In the summer of 2019, we could read about that BIF could buy the building, part of which is already owned by the Company (51%). The expert’s studies noted that the building’s structure is intact, but it needs serious and expensive renovation and reconstruction. At that time, the expected purchase price was between HUF 1.2 and HUF 1.6 billion, depending on the details of sale agreement, such as the leaseback of the post office which is operating in the building.

On 12 May the Company announced another agreement, which was concluded by and between the Company as a seller and Kastélyszálló Vendéglátóipari és Szolgáltató Kft. as a buyer of the Fenyőharaszt Kastélyszálló. The sale price of the property was determined approximately at twice the amount of the registered real estate book value as per the basis of IFRS (International Financial Reporting Standards) Fair Value Modeling in IAS-40. The latter is irrelevant from the DCF model point of view because the balance sheet does not give exact answer to the registered value, so we must calculate the estimated sale price on our own.

ABOUT THE PROPERTIES

As we mentioned above the structure of the property located at 1101 Budapest, Üllői street 114- 116 is intact but it needs serious renovation and reconstruction. The buying agreement contains four buildings and a parking lot for approximately 90-100 cars. At the time of writing, the buildings are empty. Currently we do not know the exact plan of the management with regards to the building, but there could be several exploitation strategies, like office, student apartment, hotel, or worker’s hostel to name a few. However, there can be large differences in the profitability of each strategy, so our DCF model is able to take into consideration the expected cash flow from the property only with a high error rate. Furthermore, we think the purchase price was lower than what has been circulating for the past year. We asses that the building will be able to operate from 2023 or 2024. 1

BIF FLASH NOTE

19 MAY 2020

Fenyőharaszt Kastélyszálló is a 4-star hotel at the foot of the Cserhát, furnished with authentic furniture, with 26 double rooms and 4 apartments for 3 people. According to the SZIT regulation, the Company can’t operate hotels, so BIF sold its subsidiary, the Kastélyszálló Ltd. in 2017, but the building remained in the Company’s portfolio and was operated by a third party or a fee. Now the building is also on the sale. The expected date of the closure of the transaction at the latest is 12.07.2020. So, from the closure date we cannot take into account the cash flow from the lease of the property, but this amount was not significant. On the other side, the Company receives a one-time large sum. This transaction can also be considered as a swap of a lower profitability item to a higher one.

TARGET PRICE REVIEW

To take consideration of the above and the recent changes in the risk-free rates, equity risk premiums, sector betas, -term growth rates and the changes in the Company’s net debt, our new one-year target price is HUF 345.

DCF valuation millions of HUF 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Total income 2225,6 2217,2 2901,7 2754,9 3805,6 3792,0 5288,3 7090,2 10741,1 12407,3 10491,0 12399,9 Property related costs -1247,2 -1366,3 -1804,9 -1430,7 -1341,3 -2335,4 -2616,1 -3545,1 -5370,5 -4962,9 -4196,4 -4960,0 Net interest costs -522,4 -737,1 -141,9 -67,5 -103,0 -254,8 -190,5 -507,9 -500,0 -500,0 -500,0 -500,0 FFO 691,2 176,6 1100,3 1288,5 2385,5 1352,6 2511,3 2915,0 4996,9 5774,8 5168,1 6279,8 CAPEX -299,5 -45,4 0,0 -805,8 -8068,2 -680,9 -3000,0 -10105,6 -4000,0 -3000,0 -4000,0 -1750,0 AFFO 391,7 131,1 1100,3 482,7 -5682,7 671,7 -488,7 -7190,6 996,9 2774,8 1168,1 4529,8

WACC 6,0% Growth rate 2,5%

Enterprise value 99940,5 Debt -16133,0 Cash 8831,4 Fair value of equity 92638,9 Shares outstanding 287,024

1 year target 345 Source: Consolidated company fillings, MKB

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Target price scenarios Terminal growth -2% -1% 0% 1% 2% 3% 4% 5% 147 180 226 295 411 642 1335 6% 116 140 172 216 283 394 617 7% 93 110 133 164 207 271 378 WACC 8% 74 88 105 127 157 198 260 9% 59 70 83 100 121 150 189 10% 47 56 66 79 95 116 143 Source: Consolidated company fillings, MKB

Analyst:

Csaba Debreczeni Tel: +36-1-268-8323 E-mail: [email protected]

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19 MAY 2020

Change from the prior research

Our first research was published on 29 June 2018, In that Initial Coverage our price target was HUF 2207 (before split), but the changes in fundamental factors and the latest acquisition justified the update of our model. Our new price target is HUF 345 which is 4% higher the previous price target published on 4 April 2020.

DISCLAIMER

1. This research/commentary was prepared by the assignment of Budapest Ltd. (registered seat: 1054 Budapest, Szabadság tér 7. Platina torony I. ép. IV. emelet; company registration number: 01-10- 044764, hereinafter: BSE) under the agreement which was concluded by and between BSE and MKB Bank Ltd. (registered seat: H-1056 Budapest Váci utca 38., company registration number: 01-10-040952, hereinafter: Investment Service Provider)

2. BSE shall not be liable for the content of this research/commentary, especially for the accuracy and completeness of the information therein and for the forecasts and conclusions; the Service Provider shall be solely liable for these. The Service Provider is entitled to all copyrights regarding this research/commentary however BSE is entitled to use and advertise/spread it but BSE shall not modify its content.

3. This research/commentary shall not be qualified as investment advice specified in Point 9 Section 4 (2) of Act No. CXXXVIII of 2007 on Investment Firms and Commodity Dealers and on the Regulations Governing their Activities. Furthermore, this document shall not be qualified as an offer or call to tenders for the purchase, sale or hold of the financial instrument(s) concerned by the research/commentary.

4. All information used in the publication of this material has been compiled from publicly available sources that are believed to be reliable; however MKB Bank does not guarantee the accuracy or completeness of this material. Opinions contained in this report represent those of the research department of MKB Bank at the time of publication and are subject to change without notice.

5. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. are advised to assess the nature and risks of the financial instruments and investment services. A well-founded investment decision can be made only in possession of all the relevant information, therefore investors are hereby explicitly advised to read carefully the information material, contractual provisions, conditions list and general business terms in order to be able to decide if the investment is in line with their risk bearing capacity. MKB Bank also recommends collecting information about the tax consequences and other relevant laws concerning investment services in the financial instruments mentioned in this document.

6. This document is provided for information purposes only, therefore the information provided in or derived from it is not intended to be, and should not be construed in any manner whatsoever as personalised advice or as a solicitation to effect, or attempt to effect, any transaction in a financial instrument (e.g. recommendation to buy, sell, hold) or as a solicitation to enter into an agreement or to any other commitment with regards to the financial instrument discussed. Any such offer would be made only after a prospective participant had completed its independent investigation of the securities, instruments, or transactions and received all information it required to make its investment decision. MKB Bank excludes any liability for any investment decision based on this document.

7. MKB Bank is entitled to provide market making, investment services or ancillary services regarding the financial instruments discussed in this document.

8. Content of this material enjoys copyright protection according to Act LXXVI. of 1999 on copyright, and may therefore be copied, published, distributed or used in any other form only with prior written consent of MKB Bank. All rights reserved. Unauthorized use is prohibited.

Prior researches

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MKB Bank wrote an initiation report on 29 June 2018. The research is available on the web page of the BSE (): https://bet.hu/pfile/file?path=/site/Magyar/Dokumentumok/Tozsdetagoknak/Tozsdetagok-elemzesei/mkb- bank-zrt-bif-initiation-report

The flash notes are available on the web page of the BSE (Budapest Stock Exchange): https://bet.hu/Kibocsatok/BET-elemzesek/elemzesek/bif-elemzesek

Methodology used for equity valuation and recommendation of covered companies

The discounted cash flow valuation is a method of valuing a company (or project, assets, business, etc.) with the time value of the money. The model forecasts the company’s free cash flow (free cash flow to firm) and discounts it with the average cost of capital (WACC). The cash flow is simply the cash that is generated by a business and which can be distributed to investors. The free cash flow represents economic value, while accounting metric like net earning doesn’t. The WACC represents the required by the investors. If a business is risky the required rate of return, the WACC will be higher.

Discounted cash flow model (DCF): We analyze the companies using five year forecast period and set a terminal value based on the entity’s long term growth or on different exit multiples like EV/EBITDA or EV/EBIT. In certain cases the forecast period may differ from five years. In this case the analysts must define the reason for difference. The cash flows are discounted by the company’s WACC unless otherwise specified.

In the first step we have to forecast the company’s cash flow. The free cash flow to firm (FCFF) is based on the earnings before interest and taxes (EBIT), the tax rate, depreciation and amortization (D&A), net change in working capital (which is based on the current assets and current liabilities) and the capital expenditures (CAPEX). The model requires a terminal value which can be based on the long term growth or on an exit multiple like EV/EBITDA, or EV/EBIT. Forecasting the terminal value is a crucial point because in most cases it makes up more than 50% of the net present value.

The discount rate (WACC): The average cost of capital of the company is dependent on the industry, the risk free rate, tax, the cost of debt and the equity risk premium. The cost of equity is calculated by the CAPM model, where the independent variables are the risk free rate, the industry specific levered , and the equity risk premium. The WACC is dependent on the capital structure, so the forecast of the equity/debt mix is crucial.

At the end we get the enterprise value (EV). The EV is the plus the total debt and preferred equity and , minus the company’s cash. In the last step we have to reduce the EV with the net debt. This figures divided by the shares outstanding we arrive at the target price.

The discounted cash flow model includes sensitivity analysis which takes the effects of the change in the WACC, the long term growth or the used exit multiples on which the terminal value is based.

Our target price is based on a 12 month basis, ex- unless stated otherwise.

Peer group valuation: For comparison we use peer group valuation. The analysis based on important indicators and multiples like P/E, EV/EBITDA, EV/EBIT, market capitalization, P/S, EBITDA , net debt to EBITDA, EBITDA growth, dividend and ROIC. If the industry justifies we may use other multiples. The peer group is compiled according to the companies’ main business, with respect to the region (DM or EM market).

Recommendations

 Overweight: A rating of overweight means the stock's return is expected to be above the average return of the overall industry, or the index benchmark over the next 12 months.

 Underweight: A rating of underweight means the stock's return is expected to be below the average return of the overall industry, or the index benchmark over the next 12 months.

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 Equal-weight: A rating of equal-weight means the stock's return is expected to be in line with the average return of the overall industry, or the index benchmark over the next 12 months.

 Buy: total return is expected to exceed 10% in the next 12 months.

 Neutral: Total return is expected to be in the range of -10 - +10% In the next 12 months.

 Sell: Total return is expected to be below -10% in the next 12 months.

 Under revision: If new information comes to light, which is expected to change the valuation significantly.

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